Concerns regarding strategic flexibility arose from companies’ need to survive excess capacity and flagging sales in the face of previously unforeseen competitive conditions. Strategic flexibility became an organizational mandate for coping with changing competitive conditions and managers learned to plan for inevitable restructurings. They learned to reposition assets and capabilities to suit their firms’ new strategic aspirations by overcoming barriers to change. Core rigidities flared up in the form of legacy costs, regulatory constraints, political animosity, and social resistance to adjusting firms’ strategic postures; managers learned that their firms’ past strategic choices could later become barriers to adapting corporate strategy. Managerial insights concerning how to modify firms’ resources changed the way in which they were subsequently regarded. Enterprises saw assets lose their relative productivity and value as mastery of specific knowledge become less germane to success. Managers recognized that their firms’ capabilities were mismatched to market or value-chain relationships. They struggled to adapt by overcoming barriers to change. Flexibility problems were inevitable. Even if competitive conditions were not impacted by exogenous change forces, sustaining advantage in a steady-state competitive arena became difficult; sustaining advantage in dynamic arenas became nearly impossible. Confronted with the difficulties of changing strategic postures, market orientations, and overall cost competitiveness, managers embraced the need to combat organizational rigidity in all aspects of their firms’ operations. Strategic flexibility affected enterprise assets, capabilities, and potential relationships with other parties within firms’ value-creating ecosystems; the need for strategic flexibility influenced investment choices made to escape organizational rigidity, capability traps and other forms of previously unrecognized resource inflexibility. Where entry barriers once protected a firm’s strategic posture, flexibility issues arose when the need for endogenous changes occurred. The temporary protection afforded by imitation barriers slowed an organization’s responsiveness to changing its strategy imperatives—making the firm rigid when adaptiveness was needed instead. A firm’s own inertia to change sometimes created mobility barriers that had to be overcome when hypercompetitive conditions arose in their traditional market arenas and forced firms to change how they competed. Where exogenous changes drove competitive conditions to become more volatile, attainment of strategic flexibility mandated the need to downsize the scope of a firm’s activities, shut down facilities, prune product lines, reduce headcount, and eliminate redundancies—as typically occurred during an organizational turnaround—while simultaneously increasing the scope of external activities performed by an enterprise’s value-adding network of suppliers, distributors, value-added resellers, complementors, and alliance partners, among others. Such structural value-chain changes typically exacerbated pressures on the firm’s internal organization to search more broadly for value-adding innovations to renew products and processes to keep up with the accelerated pace of industry change. Exploratory processes of self-renewal forced confrontations with mobility or exit barriers that were long tolerated by firms in order to avoid coping with the painful process of their ultimate elimination. The sometimes surprising efforts by firms to avoid inflexibility included changes in the nature of firms’ asset investments, value-chain relationships, and human-resource practices. Strategic flexibility concerns often trumped the traditional strengths accorded to resource-based strategies.
Kathryn Rudie Harrigan
Vinícius Chagas Brasil and J.P. Eggers
In competitive strategy, firms manage two primary (non-financial) portfolios—the product portfolio and the innovation portfolio. Portfolio management involves resource allocation to balance the important tradeoff of risk reduction and upside maximization, with important decisions around the evaluation, prioritization and selection of products and innovation projects. These two portfolios are interdependent in ways that create reinforcing dynamics—the innovation portfolio is the array of potential future products, while the product portfolio both informs innovation strategy and provides inputs to future innovation efforts. Additionally, portfolio management processes operate at two levels, which is reflected in the literature's structure. The first is a micro lens which focuses on management frameworks to boost portfolio performance and success through project-level selection tools. This research has its roots in financial portfolio management, relates closely to research on new product development and marketing product management, and explores the effects of portfolio management decisions on other organizational functions (e.g., operations). The second lens is a macro lens on portfolio management research, which considers the portfolio as a whole and integrates key organizational and competitive concepts such as entry timing, portfolio management resource allocation regimes (e.g., real options reasoning), organizational experience, and the culling of products and projects. This literature aims to set portfolio management as higher level organizational decision-making capability that embodies the growth strategy of the organization. The organizational ability to manage both the product and innovation portfolios connects portfolio management to key strategic organizational capabilities, including ambidexterity and dynamic capabilities, and operationalizes strategic flexibility. We therefore view portfolio management as a source of competitive advantage that supports organizational renewal.